Today’s Job Market Rallying Cry: “Bad, But Not Terrible!”

Sure, they were bad. But at least they weren’t terrible! That’s the rallying cry today I’m hearing in the wake of the latest jobs report figures from the Bureau of Labor Statistics. It showed …

The U.S. economy created 151,000 jobs in August, missing forecasts for a reading of around 180,000. July’s figures were revised up, but June’s numbers were revised down, essentially netting each other out.

On the flip side, mining lost another 4,000 workers. Manufacturing cut 14,000, the most in three months. And in the single-most important development from a longer-term perspective (more on that in a minute), construction cut 6,000 jobs.

The unemployment rate held at 4.9%, whereas economists expected it to drop to 4.8%. Labor force participation remained unchanged at 62.8%.

Average hourly earnings rose just 0.1%, down from 0.3% a month earlier and below forecasts. The average workweek also missed forecasts by dipping slightly to 34.3 hours from 34.4.

With everything from monthly job creation to wages to hours worked missing targets, I think it’s fair to call the figures disappointing. But they weren’t awful, and that led Wall Street investors to conclude we’re in a “Goldilocks” situation. By that, I mean the figures lower the chance of a September Federal Reserve rate hike, but don’t suggest a recession is imminent.

“Look beyond the immediate market reaction … and look at the underlying trends.”

Me? I’m the kind of guy who likes to look beyond the immediate market reaction to these kinds of numbers and look at the underlying trends. When I do, I see that manufacturing has been a sector showing persistent weakness. It has shed jobs in four months so far this year. That’s up from three months in 2015 and none in 2014.

I don’t see things improving any time soon, either, in part because of the struggles in the auto sector. We just got another lousy month of auto sales in August, with Ford Motor (F), General Motors (GM), Toyota Motor (TM), Nissan Motors (NSANY), and Honda Motor (HMC) all reporting worse-than-expected declines.

The seasonally adjusted annual rate of sales slipped to 16.98 million from 17.9 million in July, even as incentives jumped almost 8% from a year ago to $3,331 per vehicle. With banks just starting to tighten standards on new auto loans and with delinquencies on previously issued loans rising, I expect to see more problems in this sector throughout the rest of 2016 and 2017.

Now let’s get back to construction. The sector has now shed jobs in four out of the last five months. We haven’t seen persistent weakness like this since all the way back in 2010, when the housing sector was finally emerging from its epic bust.

The construction sector has shed jobs in four out of the last five months.

What’s going on? We’ve had a tremendous, out-of-control bubble for one thing. Commercial real estate values have soared a whopping 95% from their lows. That’s even greater than the 81% surge during the last real estate mania, which everyone pretty much agrees was the worst bubble in real estate ever. Key valuation metrics like capitalization rates have plunged to all-time lows. We’ve also seen a surge in commercial-real-estate lending and construction, particularly in the multifamily subsector.

But CRE lending standards are tightening consistently now, as I highlighted a month ago. Boston Fed President Eric Rosengren just gave a speech in Shanghai warning of the CRE mania. And there are tentative signs the big run-up in pricing could be played out.

Can strength in the services sector offset the longer-term weakness we’ve seen in manufacturing AND the more-recent weakness we’re seeing in construction? Bulls will say “no problem,” while bears will say “no way.”

I’m personally in the pessimist camp, but I’d love to hear from you in the comment section below. Will strength in services be enough to offset the dual threats I mentioned? Is the Fed going to hike rates in light of these figures? Or will they hold off again in September? What are you seeing in your own back yard these days – strength or weakness in hiring?

In any event, if you’re looking for investment opportunities, you probably want to steer toward service-based companies and away from manufacturing and construction names.

Until next time,

Mike Larson

Our Readers Speak

Fed policy. “Real” unemployment. Auto loan problems. You discussed a lot of important issues at the website this week, so I want to cover as many of your comments as possible.

Reader Thomas said the following on the economy and policy: “As long as there is such political insecurity, the consumer-spending trend will stay stagnant. Political stability and economic growth are closely correlated. No sales, no growth.

“An interest rate rise will only exacerbate stagflation at this juncture. The average household debt is also facing trouble as the rise in real income is still at an all-time low.”

Reader Howard weighed in on the Fed, saying: “The low level of confidence in the Fed is exacerbated by the perception that they have completely mishandled the situation regarding free markets. It is always easier to lower rates than raise them, and the distortions now created from this mismanagement have led to a loss of confidence in monetary policy.

“In reviewing rate adjustments prior to the election of previous new administrations, the only predictable certainty is of a bubble being popped. Fundamental economic growth is only seen when risk takers have the perception of control over outcomes. These manipulated circumstances don’t encourage market risk.”

Reader Vinman was very succinct about why he doesn’t think rates are headed higher: “The national debt is just too high for them to raise the rates. Every quarter-point increase will mean $50 billion more in interest.”

As for the state of the job market in advance of today’s figures, Reader Mike said: “Looking at the labor-participation rate now versus 10 years ago, there are about 12.6 million more people who would be looking for a job if the economy was actually vibrant. That would make the headline U-3 about 10%, and the more descriptive U-6 about 16%.

“Even at full employment, about 33% of working-age people aren’t looking for work. The “Bureau of Lying Statistics” is a farce whose only task is to put a smiley face on a pile of dog dung.”

Finally, on the topic of auto lending, Reader Chuck B. said: “Fitch Ratings says that not only was the subprime auto loan, 60-day delinquency rate up 13% in July year-over-year, but the prime loan delinquency rate was up 21% from July 2015.

“Ford Motor (F) still is giving 72-month, zero-rate loans to get rid of its 2016 overstock. It doesn’t look too good for F over the next few years, since these are company-issued loans.”

I appreciate you sharing your thoughts here. It’s clear the Fed’s omnipotence and foresight are being questioned more aggressively now than ever before, and for good reason. They have repeatedly failed to grasp the magnitude of the bubbles that they have created in the asset markets. And they have repeatedly missed their growth and inflation forecasts over the past several years.

Want to weigh in on those or other topics? Remember to use the comment section as your outlet.

Other Developments of the Day

Samsung Electronics (SSNLF) is offering to replace Galaxy Note 7 devices worldwide after consumers reported that their smartphones were catching on fire during recharging. The Korean company goes head-to-head against Apple (AAPL), and the embarrassing recall will cost untold millions of dollars. It has sold 2.5 million of the Note 7 phones since the model was launched in mid-August.

Speaking of Apple, CEO Tim Cook said the company will start bringing a portion of its $215 billion overseas cash hoard back to the U.S. It plans to begin the process next year, and it’s setting aside billions of dollars to cover the additional U.S. taxes the move will require.

If you’re looking for signs the mega-bubble in real estate is starting to deflate, this Bloomberg story gives you ammunition. It chronicles how slowing sales and weakening market sentiment in New York is forcing condo and rental developers to offer all kinds of concessions to generate interest. One luxury broker notes that high-end property sales have dropped more than 21% year-over-year.

Hurricane Hermine slammed into the Florida panhandle overnight, lashing the coast with 80 mph winds and torrential rains. The storm will weaken over land, but it’s expected to re-emerge off the U.S. East Coast over the weekend. It will likely deliver heavy rains and wind-driven storm surge to the Mid-Atlantic coast well into next week.

So what do you think of the latest news on Samsung and Apple? Is the Note 7 battery problem going to give Apple a leg up in the smartphone market? Do you believe the commercial real estate market is starting to weaken, or is it too soon to worry about that? You know where to sound off.

Until next time,

Mike Larson

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

{26 comments }

GordonFriday, September 2, 2016 at 4:02 pm

I like the way you start out saying maybe the employment numbers are really not that bad and then you dissect things and your analogy seems to fall away bit by bit. Construction, mining, manufacturing numbers down good jobs and replaced by hamburger jobs. Harry Dent digs into the numbers and they are not pretty. Sorry to rain on your parade. Yes Mr. Cook better hurry and repatriate his profits before the EU carves out a big piece. Its funny that his reparation talk seems to coincide with the EU tax demands. They say what Apple is doing is legal but they suffer from a term I remember from “Porky’s” they have no moral turpitude but then again they are not alone in this regard all those large greedy corporations are feeding at the same greedy tax trough that Ireland has so nicely provided screwing their own citizens in the process. Its a shame when ordinary citizens pay more in taxes than these greedy monetary monoliths. I hope the world sees Apple for the greedy slim they are and boycott their products.

Ted StoneFriday, September 2, 2016 at 4:12 pm

Don’t fight the tape! Low interest rates make the gears of commerce move.

ricMonday, September 5, 2016 at 12:31 am

If low interest rates make the gears of commerce move faster, the data presented by Mr. Larson of slowing auto sales, and slowing construction implies that the interest rates are not low. Yes, the banks and super rich can get super low interest rates of a quarter percent or less, buy prime rate is at 3.5%, mortgage rates around 3.5 to 4%, student loans from 6 to 12%, credit card loan rates are around 15% to even 25%. If low interest rates make the gears of the super rich move faster with there super-rich condos and mansions rising to 100 million and over per unit, by the same token high interest rates to the Main Street folks make the gears of the Main Streeters grin ever slower.

Historically, mortgage interest rates were around somewhat less than two times the bank depositor rates like when the banks were paying 3 to 4 percent to the savings account depositors, the mortgage rates were around 6 to 7 percent. This was about a 2 times markup. Now, with banks paying a quarter percent to savings depositors, the markup is more than 14 times which is a 1,400 percent markup (3.5 divided by 0.25 = 14.) The markup for student loans is 2,400 percent to 4,800 percent (6 and 12 divided by 0.25) with the markup for credit cards being 6000 percent to 10,000 percent markup. This is an obscene amount of markups like once it was said that big oil companies were making obscene amounts of windfall profits.

It used to be that when the Fed lowered the interest rate (to the member banks) by a quarter percent, one of the large banks immediately lowered credit cards to the consumers the very next day in lock step with the Fed interest rate lowering. Those were the old old days when the bank advertised that the consumers had a friend at the bank. Now? It just jacked up new credit card cash advance rates to 25%.

One thousand four hundred percent markup to ten-thousand percent markups are mind blowing numbers, as compared to the old days markup of 100 percent versus now 1400 percent markup for mortgages. If these are not obscene markups, what is? This is the road from Trickle-down economics, to Trickless economics, to Trickle-up economics, to Suck-Up economics, to Vacuuming-Up economics, to the End-Game.

Somewhat before year 2000, the 1% was estimated to own around 25 to 30 percent of the nation’s (US) wealth. Now, it is estimated that the 1% rich people own 50 percent of the nation’s wealth. In an about twenty year span, the 1% had doubled their ownership from 25 to 50 percent at about a 4% yearly growth rate. If they maintain this growth rate, the 1% people will double their ownership from the now 50% to 100% in the next 20 years. Since the rich will not about to share their ownership with the rest, a 100% ownership of the wealth of the country means a 0% ownership by the rest of the 99%. The 99% will not even own the shirts on their backs, according to the math. Once in old England, people owning nothing went into Sherwood Forest to forage. This was the Dark Ages.

Low interest rates for Main Street? That’s a laugh.

JoeFriday, September 2, 2016 at 4:18 pm

Mike
Jim Rickards says something about a “World Currency” being implemented on 9/30/16. Any comments would be appreciated.

WillFriday, September 2, 2016 at 10:27 pm

Joe: I understand Jim Rickards to say that the actions of the G20 meeting on 4 September will be to replace the USD with SDRs as the world’s reserve currency through actions taken by the IMF in their meeting on 30 September 2016. The SDR will become over time a new “World Reserve Currency”. Think of the effect of this more in terms of US Treasuries and currency exchange transactions. You will not be carrying SDRs in your billfold, but if you ever travel to another country a few years from now today’s king dollar may no longer be king.

David C.Friday, September 2, 2016 at 4:46 pm

The employment numbers were “not too bad” if you just take the reported number at face value. However, I read often that the seasonal adjustments, especially the “Birth/ Death” adjustment is woefully inaccurate. New small business creation in the US has been negative for over two years I believe, yet the B of L is still assuming more businesses created, thereby assuming jobs were added by those businesses. Add to that the fact the we are one of the only countries that don’t count “Long Term Employed”, i.e. those whose benefits have expired are not included in the labor force. I’m not completely sure but aren’t we the only country who does this? I know Europe and Canada count everyone who is in the labor force in their reports. Also, the quality of jobs, which Mike highlighted, is another negative, yes it’s a job but with compensation your can’t live on. When you look at the real numbers our employment situation is really much worse than reported.

GordonSaturday, September 3, 2016 at 3:02 am

David C
Its all a numbers game pick a number and if your the government you can cherry pick your way through. As you state they include a lot of questionable numbers but again the government can say “make it so” and its packaged up and given to you gift wrapped and all. Go buy more stock and boost the economy. As Stanley Fisher from the Fed said in essence is “screw the savers” we must keep investors in the game. I see by the stock indexes above that the old saying my grandmother used is quite applicable “And the blind shall lead the blind” Happy investing in stocks. I pocketed over a $1000 from my precious metals investments last night thanks to the so called luke warm employment numbers. The gold knows.

$1,000 goldSunday, September 4, 2016 at 9:02 pm

the numbers are always worse than reported. always have been and always will be. just like accountants cook the books. always have and always will.

WayneFriday, September 2, 2016 at 4:53 pm

Auto sells are in the beginning of a down cycle. In 2008 sales were terrible….than each autos, SUV’s & trucks.
So until those get to be 7-10 yrs old auto sells will slow down or flatten out. Than for sure in 10yrs most will need replacements.

Commercial real estate is slowing. Why do you think Donald Trump really wants to be President. That $400,000/yr should help his pocket book some. Same with Hilary. Plus whoever wins will have the inside track to become wealthier.

Since oil and gas are a large part of manufacturing than Houston we have a problem. You take oil & gas out of the equation and we really do not have much manufacturing.

We are now a service economy………………..

Traveling the roads & highways of our nation plus using the rails from time to time I fine a crumbling intrastructure from east to west and north to south. When are we going to fix that………………..no one wants to raise taxes or increase our borrowing. No guts no glory

Have a great Labor Day Holiday

ThomasFriday, September 2, 2016 at 5:29 pm

On top of the agenda of the G 20 Summit in China this weekend will be global economy growth, (and the lack thereof), and what to do about it! To create real job opportunities is not easy if businesses refuse to invest or if Governments do not have enough money to invest in infrastructure related projects. This is the key underlying problem almost in any country worldwide today! Bad job market stats is only a symptom or effect of this key underlying factor. Lack of economic growth cannot be corrected by QE voodoo economic tactics. Neither can you tax a country to prosperity. To be a pessimist with a close mind will make me cynical on the long run. In the end, the price of progress will be the pain in change! It is never to late to change! Let us look for the opportunities in the coming change!!!

ricFriday, September 2, 2016 at 11:29 pm

Without a system of incentives, the rich are not moved to create new jobs, just like it was said that in the former Soviet Russia, without a system of incentives, production lacked. The rich, and the big corporations are given huge tax cuts in the last few decades which are not based on any merit system like tax cut will be granted to the rich and their corporations depending on the number of net new domestic US jobs created. There huge tax cuts are given to the rich willy nilly the same amount even if they don’t create any new net jobs, and even worse even if they outsource more jobs than they any they created. As if it could not be worse, extra tax cuts were given to the corporations when they outsource extra jobs, according to the Democrats with some kind of extra incentive for killing domestic jobs. With incentives and a merit based system, it becomes a sort of welfare-system-for-the-rich. What incentive is there for the rich and their corporations to work hard to create new US domestic jobs, when they can get the same tax cuts for not bothering to work hard to create new domestic jobs? What incentives are there for the rich and their corporations to work hard to create new domestic jobs when they get bigger tax cuts for outsourcing more jobs. Like the former Soviet Russia, without incentives, the rich people get lazy, and they do not work hard enough to create net new domestic jobs. As the collapse of the former Soviet Russia has shown, without proper incentives, people don’t work hard enough. When the rich people and their rich corporations are without proper incentives, they don’t work hard enough to do the right things for their country. Welfare for the rich do not provide incentive for the rich to work hard enough for their country. When money is showered on the rich willy nilly without any merit based considerations, what incentives are left for them to work hard for their country?

GordonSaturday, September 3, 2016 at 3:12 am

Thomas
At 78 I have been listening to all this G20, G8, G50 or whatever horse pucky for years. It used to impress the hell out of me when I was younger but now like so much else its becoming nothing but repeated rehashed tired old do nothing rhetoric. As you state the infrastructure is crumbling yet Rome keeps fiddling. They have been reduced to a bunch of 3rd rate entertaining minstrels that really suck at what they do. Each time North Korea does a test the loud bombastic crap pours out of their mouths yet in the end nothing is done. Its all done with the hope that they can bamboozle you and me. As Churchill said “the best argument against democracy is to talk to a voter for 5 minutes”

Ray LaubFriday, September 2, 2016 at 6:01 pm

I like the evenhanded tone of citing both plusses and minuses without crying ‘wolf’. Keep it up this way. Ray Laub

DennisFriday, September 2, 2016 at 7:42 pm

Mr. Larson: When projecting jobs lost or gains does anyone , including yourself, take into consideration jobs lost to companies moving out of the country. ie Carrier a/c or Oreo just to name 2. I would like to know this. Thanks Dennis

Jo MuellerFriday, September 2, 2016 at 9:24 pm

We are going through the infamous battle: What was there first, the hen or the egg?
In line with capitalistic ideology money goes where it is treated best and jobs go where the capitalists consider them the cheapest. So Apple (just as an example) parks the money in Ireland and hires companies in China to do the dirty.
Where does that leave the economy? The top guys in the US do not put their money to work in the US, they just act as traders. That keeps the majority of people in low paying jobs or completely out of work. They are not even good customers as their disposable income is limited or non existent because of slave labour wages.
The situation will worsen as more and more service jobs are being handed over to robots. As an example, once Amazon gets it their way the whole packing and delivery process will be automated by machines and drones. That means people are slowly spending their inheritance and go deeper into debt. But that will end and it will be bad.
Politicians are unable to see the problems and if they see some they will be unable to act. They cannot even come up with a big plan for the future. Making “America” (which is a continent and not a country) great again may touch some patriotic pride but is no plan.
Economists are of no help as they never have a solution and their analyses are contradictory. Therefore Bernies battle cry for another revolution will turn into just that. That is, if we as a human race have not erased ourselves through war and disease before a revolution can happen. Am I glad that I will not live to experience this Armageddon.

HowardFriday, September 2, 2016 at 11:31 pm

No one but Trump can get us out of this mess now. Let me give you just one example. The Fed is a collection of private banks who have completely wrecked confidence in monetary policy. The banks prized position in running the Fed could kept by being traded off against an interest free loan on all government debt. Why should the government (the people) go broke trying to fix up the banks extremely poor handling of banking practices. This would enable a new administration to more easily manage debt. Since 2008 no banker has been called to account for the complete misapplication of loans in the unregulated swaps market. An incompetent economist could have managed monetary policy better than the Fed. Some members of the Fed should face prosecution for this high level of incompetence.

MikeSaturday, September 3, 2016 at 1:59 am

The slow economy is a sure sign of failed democrat policies.

MikeSunday, September 4, 2016 at 12:18 am

By the same token an economy in a tailspin is a sure sign of successful Republican policies that were demonstrated only 8 years ago. Hurry, we might still have time to turn a lousy 150,000 monthly job gain into a 700,000 monthly job loss.

JeromeSaturday, September 3, 2016 at 2:57 am

Forget the numbers and reports. The FED will do nothing but talk until at least the election. No way a September raise.

Andrew TorranceSaturday, September 3, 2016 at 5:48 am

It’s like Ireland in 2008. Real estate prices had trebled in 10 years thanks to easy credit. The banks then started tightening up on lending standards, and suddenly, prices crashed by 50% over the next 2 years leading to a wave of bankruptcies.

Bust

The famous American, Hemingway
Was once asked how bankruptcy came his way.
He said: “Slowly, at first,
Then incredibly fast.”
When your debts rise you could go bust any day.

JamesSaturday, September 3, 2016 at 6:38 am

The bull is connected with the moon goddesses and also represents Taurus in the Zodiac. The Bear symbolises spiritual strength and power. Bulls will always say no problem while the Bears will take the more logical approach and say no way. Look at the Chicago Bears success in the NFL recently.

$1,000goldSaturday, September 3, 2016 at 7:50 am

money market funds are still in decline and industrial production has finally increased. two bullish signs. will it continue?

$1,000goldSaturday, September 3, 2016 at 7:52 am

…but, is bad news for the economy still good news for stocks?

StuSaturday, September 3, 2016 at 9:24 am

Low wages , lower taxes and minimal regulations overseas equals no job growth in the U.S. Very few people will pay more for American made products when they can buy a lower cost piece of junk made in China. When will we ever learn?

Jim BrownSaturday, September 3, 2016 at 12:53 pm

They will offset each other. Anyway you look at it, debt is the issue. The market coughs up cotton balls, if it goes over 18,500 on the Dow. The Fed doesn’t want the markets to overheat. That is why, it’s treaded water for two years. Our economy is in serious trouble.

HawkeyeSaturday, September 3, 2016 at 10:23 pm

Stock up on food, guns, ammo, and precious metals for real money when fiat currency loses its value basis …. faith of people.